Cost-Of-Living Crisis Forcing Younger Adults To Consider Their Retirement Finances

With a growing number of pensioners living on the poverty line, 21% of young people are now reconsidering their plans for retirement due to inflation. Rudy Khaitan, Managing Partner of Senior Capital, the UK’s leading later life lending specialist, discusses how equity release represents a useful method to help UK pensioners who have now proactively saved for their pension. 

Cost-Of-Living Crisis Forcing Younger Adults To Consider Their Retirement Finances

The UK’s recent economic conditions of high inflation and interest rates have prompted more individuals, especially younger adults, to consider their retirement finances, according to research by Standard Life. The study revealed that 16% of people were more interested in planning for retirement due to inflation, while 11% cited increasing interest rates as a motivating factor. Among younger generations, these figures rose to 21% and 15%, respectively.

Early financial planning can have a significant impact on the amount saved by young people, with analysis showing that individuals starting to contribute to a pension at age 22 with a £25,000 annual salary could accumulate a retirement fund of £434,000 by age 66 (not adjusted for inflation). However, delaying contributions until age 27 could result in a fund of £320,000 by age 66, £141,000 less than those who started contributing at age 22.

With the acknowledgement that the challenges faced by younger adults in the current economic climate are extremely difficult, a landmark report from Senior Capital – the UK’s leading later-life lending specialist – states what happens when the UK’s younger population do not successfully save for their retirement.

Senior Capital finds that almost one in five pensioners (18%) across the UK will find themselves on the poverty line due to not having enough money in their pension funds. Highlighting the sheer number of people that are affected by this crisis, there are nearly 16m people over the age of 60 across the UK – making up a fifth of the population – of which over-85s are set to double to a staggering 2.6m in the next 20 years alone, according to The Health Foundation. In light of these alarming findings, Rudy Khaitan, Managing Partner of Senior Capital, highlights how equity release loans allow pensioners to remain in their homes whilst also accessing their capital value to help fund their retirement and reduce pensioners’ mental health strain.

Due to the increase in house prices over the last 50 years, thousands of pensioners now find themselves in a situation of having a significant amount of capital wealth, however, are unable to access this in order to fund their retirement in the present. In the early 70s, the average house price stood at a mere £4,975, but according to the latest figures released by the Office for National Statistics (ONS) in July, the average house price has skyrocketed to £290,000.

By engaging in equity release, those who are currently struggling have the opportunity to tap into the significant value tied up in their homes, whilst also remaining in them and accessing much-needed funds to alleviate their financial strains amidst the ongoing cost of living challenges.

Reporting on the dire need for methods of accessing capital such as this, further findings from the report have revealed that one in seven pensioners now say that their biggest mental health strain is worrying about funding their retirement. Subsequent research highlights that many of Britain’s retirees are concerned amidst the cost-of-living crisis, with 22% already reducing or stopping spending on medications and 15%, skipping meals due to their financial situation. Senior Capital’s further data shows that 21% of respondents said that despite paying off their mortgage in full, they were still unable to live fulfilling lives due to not having enough money in their retirement funds.

Furthermore, the latest UK Government data reveals a 20% surge in the count of full-time and part-time self-employed individuals aged 65 and above, with the figures rising from almost 435,000 to over 523,000 in just three months. The number of over-65s working as employees or self-employed has also hit a record high of 1.468 million in June 2022, with the self-employed accounting for around 35% of the total number of those working at 65 and over. With self-employed over-65s accounting for around 12 of the total 4.24 million self-employed workers in the UK as a whole, the UK’s cost of living is driving their need to boost retirement income.

Amidst this new wave of pensioners who find themselves living on the poverty line, equity release loans have experienced a record 23% year-on-year increase as a vital lifeline amidst the cost-of-living crisis. According to the Equity Release Council, over 93,000 Brits took out this type of plan/loan in 2022. To create financial liquidity, stability and a better quality of life, Senior Capital was created to serve a growing number of homeowners looking to access capital from the £800bn currently tied up in property wealth.

Managing Partner of Senior Capital, Rudy Khaitan, comments on releasing equity and the importance of LTV: 

“There is a growing need for new products that offer greater flexibility and choice, particularly in the relatively underserved later-life lending market. For pensioners or anyone planning for their retirement, LTV is a critical component when assessing your quality of life during your later years, so it’s vital to investigate a multitude of options that can help ease your financial obligations, as remortgaging may not always be the right option.

“The right equity release mortgage product, particularly those that offer the greatest flexibility through limited prepayment penalties, can be the better option vs a more traditional mortgage when you want to unlock the value in your home without taking on additional monthly repayments. It allows homeowners to access the equity built up in their property, providing a tax-free lump sum to supplement regular income, whilst still retaining ownership and the right to live in their home for life or until they move into long-term care. This can be particularly advantageous for those who are retired or have limited income, as it offers financial flexibility and stability without the burden of servicing higher mortgage repayments.”

About Senior Capital

Established in August 2022, Senior Capital has mobilised in excess of $150m for the UK economy via an origination and securitisation platform which simultaneously unlocks wealth for the UK’s retiree generation and allows for the easier transmission of wealth towards younger generations. With a vast majority of millennials unable to access the housing ladder – and a 40% standard Inheritance Tax rate – Britain’s wealth is currently held within the remits of those who are now desperate to release this capital – with 1-in-5 of those aged 65+ classified as millionaires, according to asset manager Netwealth. With the typical homeowner now having five years’ worth of retirement income tied up in their property, there is a dire need for new lending structures that can transform this into cash to help both pensioners in need and the economy.

  • In April 2023, Senior Capital closed its second round in a series of securitisations of equity release through mortgage assets.
  • This success allowed Senior Capital to secure permanent funding in excess of $150m from UK and US re(insurers) in the form of structured, externally rated notes.
  • On close, Senior Capital was able to realise a positive liquidity event, with the proceeds from the sale of these rated notes being in excess of the total acquisition cost of the underlying assets.